Briish Airways - Industry Analysis

Contents

I) Airlines Industry 2

1) Introduction

2) Segmentation of Airlines Industry 2

2.1) Domestic and International 2

2.2) Passenger and Freight 2

3) Success Factors of Industry 2

4) Effect of Legislations, Environment, Global Economy on Airlines Industry's Life Cycle 3

4.1)Legislation 3

4.2)Environment 3

4.3) Global Economy 3

II) British Airways

1) Introduction 3

2) Analysis of Nature of Competition 4

3) Financial Measures of Success 4

3.1) ROCE 4

3.2) Liquidity 4

4) Comparison of Financial Ratios with Competitors 5

5) Positioning Map 5

III) Conclusion 5

IV) References 6

V) Appendix 1 7-8

VI) Appendix 2 9-11

I) Airlines Industry

1) Introduction

Today world's economy, political affairs and lifestyle has become global, and hence there is need of greater mobility and access. Airlines industry is serving this need with greater efficiency. World has become wealthier and people have more disposable income. Life has become faster, so people prefer faster way of travelling. These factors have given big boom to Airlines Industry. International Air Transport Association (IATA) report published by The Economic Times (2010) says that this year there is a net profit of $5 billion in international airlines industry, whereas industry lost $9 billion in 2009.This depicts a growth this year.

We will discuss the airlines industry by segmenting it and analyse the strategy industry followed as it grew in this tough time. Also we will analyse the effect of legislation, environment and economic changes in the global world which affect functioning of airlines industry.

2) Segmentation of Airlines Industry

Segments of airlines industry are:

2.1) Domestic and International: In domestic Industry group of firms provide services within one country. In international industry company sets its carriers to different countries. Working in both domestic and international markets provides airlines industry better returns than by operating in one of these.

2.2) Passenger and Freight: Passenger Airlines industry is used by the people for transportation. Also a part of airlines industry is dedicated to carry cargo or freight.

3) Success Factors of Industry

Let's discuss success and survival factors of industry, as a part of travel and tourism industry, using VIRUS Criteria. Airships, Technology and Speed are Valuable, Inimitable, Rare and UnSubstitutable factors of the airlines industry. Aircrafts provide pleasure of looking at the earth from a height. Airlines industry uses technology that made it possible for and aircraft to rise against gravity.

4) Effect of Legislations, Environment, Global Economy on Airlines Industry's Life Cycle

4.1) Legislation

Legislation in the form of tariff regulation, route regulation and others affect airlines industry as these help providing quality service at reasonable price. The report The Impact Of International Air Service Liberalisation on India (InterVISTAS-EU, 2009), Liberalisation of Air Service agreements resulted in greater competition, lowering airfares, more planes on one route, introduction of new routes, and more air traffic. Due to this there is the rise in competition with growth of industry.

4.2) Environment

Environment effects airlines industry a lot. Usually there is cancellation/delay of flights due to rain, fog etc. According to The Impact of Eyjafjallajokull's Volcanic AshPlume (IATA 2010), the ash plume from Eyjafjallajokull volcano affected 1.2 million passengers due to cancellation of flights. There was a loss of US$1.7 billion to industry, but also industry saved US$110 million a day on fuel. Industry's growth was affected adversely.

4.3) Global Economy

Changes in global economy have direct impacted on airlines industry. If we look at the figures presented in The Annual Report of International Civil Aviation Organisaton (ICAO) (2009), says that there was downfall in passenger-km, freight-km and total tonnes-km performed in the airlines industry (Appendix 1). This adverse impact on growth can be justified because of recession.

II)British Airways

1) Introduction

Now we will study British Airways as prominent firms in Airlines Industry. It was formed by the merger of BEA (British European Airways) in Europe and BOAC (British Overseas Airways Corporation) in 1974 though its name was registered in 1935. Later in 1987 BA was privatised and from then it started earning profits (BBC Magazine,2010).

2) Analysis of Nature of Competition

BA provides both domestic and international transportation service Hence it faces competition from UK (EasyJet and Ryanair) and from world (Virgin, Lufthansa and Emirates). Bargaining power of the suppliers in the airlines industry is great both in terms of Oil (Iraq and few more) and carrier supplier (mostly Boeing and AirBus). BA has no control on both the inputs it needs to run the business. Also the bargaining power of suppliers is high as the customers of BA always have a range of options to choose from. Customers' loyalty is too low as customers are more concerned of their pockets. Threats of new entrants is also low, hence BA's dominance is minimising. As low cost carriers is capturing short-haul business (EasyJet), globally it competes with Lufthansa, Virgin and other for routes and customer attraction. Threats of substitution are quite low internationally as speed of airships is unmatchable.

3) Financial